Turning 65? What You Need to Know About HSA Eligibility

There is often confusion around this topic and whether eligibility to make or receive Health Savings Account ("HSA") contributions ends upon an individual's 65th birthday. The rule is not based on age, but whether an individual is entitled to Medicare. For this purpose, "entitlement" to Medicare is generally eligibility plus enrollment.

Individuals can be entitled to Medicare based on age, disability, or diagnosis of end-stage renal disease. Any individual electing and receiving Social Security benefits will automatically be entitled to Medicare Part A benefits. Thus, upon turning age 65 and once Social Security payments are active, individuals are automatically enrolled in Medicare Part A - and thus ineligible for HSA contributions. Individuals who delay Social Security benefits and Medicare enrollment beyond age 65 remain eligible to make HSA contributions.

It is important that plan sponsors recognize when HSA participating employees turn 65. Such individuals are not likely eligible to continue contributing or receiving employer contributions to an HSA. In addition, since HSA eligibility is determined monthly, turning 65 mid-year will impact the maximum annual contribution limit. For example, an individual eligible to contribute to an HSA for only 6 monhts during the calendar year will be limited to ½ the annual contribution limit. Contributing an amount in excess of the individual's permitted contribution limit can cause potential tax penalties and headaches for both the participant and employer. It is much easier for plan sponsors to address the issues presented by Medicare entitlement if done before the individual turns 65.